Global Economics

China's Red-Hot Art Market

July 17, 2007

Stock prices may fluctuate, but prices for art are going straight up. Revolutionary-era works from the 1930s to the mid-70s are in favor

While those who play China's stock markets may not be able to sleep at night for fear of price fluctuations, art dealers watch from the sidelines with smiles on their faces and heaps of money in their pockets.

Prices at spring auctions in Beijing and Hong Kong have soared this year. In the modern and contemporary art section, 12 lots in Hong Kong and four lots in Beijing each went for more than US$1.3 million before June 10 and another dozen auctions were still to be held.

"We are happy to see the mainland's art market give a wonderful performance... after some adjustments last year," said Wang Yannan, president of China Guardian, the country's largest art chain of auction houses, which was founded in 1993.

Red art, created during China's revolutionary years from the 1930s to 1976, is particularly sought after. The top-selling lot in Hong Kong this spring was Put Down Your Whip, an oil painting by Xu Beihong (1895-1953) that sold for US$9.23 million in April after furious bidding at a Sotheby's sale. The revolution-themed Ode to the Yellow River, painted by Chen Yifei (1946-2005) in 1971 fetched US$5.16 million at a China Guardian auction in May, a domestic record for an oil painting.

"There has never been a year with so many artists hitting personal records [above US$1.3 million]," said Li Feng, director of the modern and contemporary art department at Beijing-based Huachen Auction Co, one of the five largest art auctioneers in China. "Some people who stopped buying art and turned to stocks last year are coming back to me now."

Red art survived a chill that swept through the market last year. After peak of US$88.5 million in the autumn of 2005, the total sales volume at China Guardian fell 27.1% to US$64.5 million last spring and another 11.1% to US$57.3 million in autumn. Sales jumped 35.6% to US$77.69 million this spring.

The resurgence may be fuelled by new investments as buyers realize that the triple-digit price growth seen between 2003 and 2005 was not a bubble.

As prices stabilize, the risks associated with investing in important and expensive works become lower. Consequently, the Chinese art market, like many other sectors, is now awash with cash, even if few people know the source.

"There are large sums of money flowing into the art market, but I am not sure where they are from," said Ma Zhefei, from Beijing Poly International Auction. Beijing Poly was the biggest winner during the spring auction cycle, earning US$80.77 million at its June auctions.

The stock effect

There is no clear evidence linking art prices to China's booming bourses but because of its small size the art market may be easily influenced.

"The annual sales volume of the whole art market in the mainland has never reached US$13 billion, while the daily trading volume of the stock market can reach more than US$26 billion," said Ma. "It is like a leaf drifting in the water - one cannot say in which direction the market of art is influenced by stocks - whether it is hurt or propelled by (their) prosperity."

Certainly, modern and contemporary art has made a comeback, particularly oil paintings, which contributed to more than a third of total sales at the larger auction houses this year. Last autumn they accounted for less than one fifth.

"I have met buyers from the mainland, Hong Kong, Taiwan, Canada, Korea, Indonesia...and virtually around the world," said Li. "Red art can be Beijing's competitive edge."